What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-11-09 compared with 2021-11-10 · 154 added, 172 removed, 403 unchanged (45% of the section changed)

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our capital resources and liquidity, which discusses key aspects of our statements of cash flows, changes in our balance sheets and our financial commitments;

and a summary of our critical accounting policies and estimates we believe are important to understanding the assumptions and judgments incorporated in our reported financial results.

and a summary of our critical accounting estimates that involve a significant level of estimation uncertainty.

Our MD&A should be read in conjunction with Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

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In fiscal 2022, our B2B scoring solutions, including the flagship FICO ® Score, continued to be the standard measure of consumer credit risk in the U.S.

In January 2020 we introduced our most predictive scores, FICO ® Score 10 and 10T .

We also created the FICO ® Resilience Index, a complement to FICO Scores that identifies consumers who are more resilient to economic stress relative to other consumers within the same FICO Score bands.

We continued to promote adoption of our most predictive scores, FICO ® Score 10 and 10T.

We also continued our rollout of the FICO ® Resilience Index, a complement to FICO Scores that identifies consumers who are more resilient to economic stress relative to other consumers within the same FICO Score bands.

We continued to develop scores that use alternative data to enhance conventional credit bureau data and generate scores for otherwise un-scorable consumers.

During fiscal 2022, we continued to advance our platform-first, cloud delivered strategy in our Software segment.

This led us to exit less strategic areas of our business in order to facilitate incremental investment in higher value, more strategic areas.

As part of this process, we divested the non-platform-based Collections and Recovery (“C&R”) business, sold all assets related to our cyber risk score operations, and sold certain assets related to our Software operations to an affiliated joint venture in China.

During fiscal 2020, we changed our business practice of selling term software licenses with separate license and maintenance components to a single software subscription contract with license and maintenance bundled.

This transition was substantially completed by the end of the first quarter of our fiscal 2021.

The timing of our revenue recognition on these subscription sales changed, resulting in less revenue recognized upfront and more revenue recognized over the term of these subscriptions.

This change led to a negative impact of our revenue recognized from term software licenses in our fiscal 2021 but does not affect total revenue recognized over the life of a contract.

In addition, this change does not negatively impact our cash flows.

We also continue to enhance stockholder value by returning cash to stockholders through our stock repurchase programs.

In June 2021, following the divestiture of our C&R business, we entered into an accelerated share repurchase agreement (“ASR Agreement”) to repurchase $200.0 million of our common stock.

In August 2021, we entered into a stock repurchase agreement with an institutional shareholder pursuant to which we repurchased $225.0 million of our common stock.

We also repurchased shares in other open market transactions under our stock repurchase programs.

During fiscal 2021, we repurchased 1.9 million shares at a total repurchase price of $882.2 million.

As of September 30, 2021, we had $173.2 million remaining under our current stock repurchase program.

Due to the COVID-19 pandemic, we continue to conduct business with substantial modifications to employee travel and work locations and also the virtualization of sales and marketing events.

We expect these modifications to remain in place throughout calendar year 2021, along with substantially modified interactions with customers and suppliers, among other adjustments.

As certain offices reopened due to the lifting of local government restrictions and a small number of employees started returning to work locations on a limited basis during fiscal 2021, we have maintained a “Voluntary Work-From-Home Policy” providing our people with valued flexibility.

While we have not experienced material disruptions to our operations from the COVID-19 pandemic, we are unable to predict the full impact that the COVID-19 pandemic will have on our operations and future financial performance, including demand for our offerings, impact to our customers and partners, actions that may be taken by governmental authorities, and other factors identified in “Risk Factors” in Part I, Item 1A of this Report.

Highlights from Fiscal Year 2021

• Total GAAP revenue was $1.32 billion during fiscal year 2021, a 2% increase from fiscal year 2020.

• Total revenue for our Scores segment was $654.1 million during fiscal year 2021, a 24% increase from fiscal year 2020.

This led us to divert resources from less strategic areas of our business in order to facilitate incremental investment in higher value, more strategic areas.

We also continued our transition from private data centers to external service providers to host our technology infrastructure.

We also continued to enhance stockholder value by returning cash to stockholders through our stock repurchase programs.

During fiscal 2022, we repurchased 2.7 million shares at a total repurchase price of $1.1 billion.

Highlights from Fiscal 2022

• Total revenue was $1.4 billion during fiscal 2022, a 5% increase from fiscal 2021.

Our business divestiture in the prior year had a 3% negative impact on total revenue for fiscal 2022.

• Total revenue for our Scores segment was $706.6 million during fiscal 2022, an 8% increase from fiscal 2021.

• Annual Recurring Revenue for our Software segment as of September 30, 2022 was $569.3 million, a 9% increase from September 30, 2021, excluding divestitures.

• Dollar-Based Net Retention Rate for our Software segment during the fourth quarter of fiscal 2022 was 107%, excluding divestitures.

• Cash and cash equivalents was $195.4 million as of September 30, 2021, compared with $157.4 million as of September 30, 2020.

• Operating income, which included $100.1 million gains on product line asset sales and business divestiture, was $505.5 million during fiscal year 2021, a 71% increase from fiscal 2020.

• Net income was $392.1 million during fiscal year 2021, a 66% increase from fiscal 2020.

• Cash flow from operations was $423.8 during fiscal year 2021, compared with $364.9 million generated during the prior year.

• Total debt balance was $1.268 billion as of September 30, 2021, compared with $845 million as of September 30, 2020.

• $882.2 million was spent on share repurchases, compared with $235.2 million spent during the prior year.

• Operating income was $542.4 million during fiscal 2022, a 7% increase from fiscal 2021.

Operating income during fiscal 2021 included gains on product line asset sales and business divestiture of $100.1 million.

• Net income was $373.5 million during fiscal 2022, a 5% decrease from fiscal 2021.

Net income during fiscal 2021 included pre-tax gains on product line asset sales and business divestiture of $100.1 million.

• Diluted EPS was $14.18 during fiscal 2022, a 6% increase from fiscal 2021.

Diluted EPS during fiscal 2021 included pre-tax gains on product line asset sales and business divestiture of $100.1 million in the aggregate, or $2.71 per share after tax.

• Cash flow from operations was $509.5 million during fiscal 2022, compared with $423.8 million during fiscal 2021.

• Cash and cash equivalents were $133.2 million as of September 30, 2022, compared with $195.4 million as of September 30, 2021.

• Total debt balance was $1.9 billion as of September 30, 2022, compared with $1.3 billion as of September 30, 2021.

• Total share repurchases during fiscal 2022 were $1.1 billion, compared with $882.2 million during fiscal 2021.

Key performance metrics for Software segment

Annual Contract Value Bookings (“ACV Bookings”)

Management regards ACV Bookings as an important indicator of future revenues, but they are not comparable to, nor are they a substitute for, an analysis of, our revenues.

Management regards ACV Bookings as an important indicator of future revenues, but they are not comparable to, nor are they a substitute for, an analysis of our revenues and other U.S.

generally accepted accounting principles ( “ U.S.

GAAP ” ) measures.

We define ACV Bookings as the average annualized value of software contracts signed in the current reporting period that generate current and future on-premises and SaaS software revenue.

We only include contracts with an initial term of at least 24 months and we exclude perpetual licenses and other revenues that are non-recurring in nature.

We only include contracts with an initial term of at least 24 months and we exclude perpetual licenses and other software revenues that are non-recurring in nature.

For renewals of existing software subscription contracts, we count only incremental annual revenue expected over the current contract as ACV Bookings.

ACV Bookings is calculated by dividing the total expected contract value by the contract term in years.

The expected contract value equals the fixed amount — including guaranteed minimums — stated in the contract, plus estimates of future usage-based fees.

The expected contract value equals the fixed amount — including guaranteed minimums, if any — stated in the contract, plus estimates of future usage-based fees.

We develop estimates from discussions with our customers and examinations of historical data from similar products and customer arrangements.

Differences between estimates and actual results occur due to variability in the estimated usage.

This variability is primarily caused by the economic trends in our customers’ industries;

This variability can be the result of the economic trends in our customers’ industries;

individual performance of our customers relative to their competitors;

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Total on-premises and SaaS software ( * )

(*) During fiscal 2021, we sold all assets related to our cyber risk score operations, sold certain assets related to our Software segment to an affiliated joint venture in China, and divested our C&R business.

The amounts above exclude these divested product lines and businesses for all periods presented.

$ 29.5 $ 25.8 $ 85.7 $ 62.8

The amount for the year ended September 30, 2021 excludes these divested product lines and businesses.

Annual Recurring Revenue (“ARR”)

Accounting Standards Codification 606 requires us to recognize a significant portion of revenue from our on-premises software subscriptions at the point in time when the software is first made available to the customer, or at the beginning of the subscription term, despite the fact that our contracts typically call for billing these amounts ratably over the life of the subscription.

Accounting Standards Codification Topic 606, Revenue from Contacts with Customers, requires us to recognize a significant portion of revenue from our on-premises software subscriptions at the point in time when the software is first made available to the customer, or at the beginning of the subscription term, despite the fact that our contracts typically call for billing these amounts ratably over the life of the subscription.

The remaining portion of our on-premises software subscription revenue including maintenance and usage-based fees are recognized over the life of the contract.

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We calculate ARR as the quarterly recurring revenue run-rate multiplied by four.

The following table summarizes our ARR at each of the dates presented:

The following table summarizes our ARR for on-premises and SaaS software at each of the dates presented:

December 31, 2020 March 31, 2021 June 30,

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Non-Platform 439.9 437.1 445.9 448.8 454.4 453.6 452.5 455.1

Total on-premises and SaaS software $ 486.9 $ 491.4 $ 482.3 $ 491.3 $ 495.0 $ 497.3 $ 513.6 $ 524.0

Total $ 495.0 $ 497.3 $ 513.6 $ 524.0 $ 546.6 $ 550.3 $ 560.9 $ 569.3

Platform 11 % 12 % 13 % 14 % 17 % 18 % 19 % 20 %

Non-Platform 89 % 88 % 87 % 86 % 83 % 82 % 81 % 80 %

Total on-premises and SaaS software 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %

Total 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %

Platform 38 % 47 % 54 % 58 % 67 % 60 % 60 % 52 %

Non-Platform (2) % (3) % 2 % 1 % 3 % 4 % 1 % 1 %

Total on-premises and SaaS software 5 % 7 % — % 1 % 2 % 1 % 7 % 7 %

Total 2 % 1 % 7 % 7 % 10 % 11 % 9 % 9 %

The amounts above exclude these divested product lines and businesses for all periods presented.

(**) The FICO platform software is a set of interoperable services which use software assets owned and/or governed by FICO for building solutions and which conform to FICO architectural standards based on key elements of Cloud Native Computing design principles.

These standards encompass shared security context and pre-integration using FICO standard application programming interfaces for all services.

The amounts and percentages above exclude these divested product lines and businesses at all dates presented.

(**) The FICO platform software is a set of interoperable capabilities which use software assets owned and/or governed by FICO for building solutions and services which conform to FICO architectural standards based on key elements of Cloud Native Computing design principles.

These standards encompass shared security context and access using FICO standard application programming interfaces.

Dollar-Based Net Retention Rate (“DBNRR”)

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Our calculation includes the positive impact among this cohort of customers of selling additional products, price increases and increases in usage-based fees, and the negative impact of customer attrition, price decreases, and decreases in usage-based fees during the period.

However, the calculation does not include the positive impact from sales to any customers acquired during the period.

However, the calculation does not include the positive impact from sales to any new customers acquired during the period.

Our DBNRR may increase or decrease from period to period as a result of various factors, including the timing of new sales and customer renewal rates.

The following table summarizes our DBNRR for each of the periods presented:

The following table summarizes our DBNRR for on-premises and SaaS software for each of the periods presented:

Quarter Ended

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Non-Platform 97 % 96 % 100 % 100 % 102 % 103 % 101 % 100 %

Total on-premises and SaaS software 103 % 105 % 98 % 99 % 100 % 100 % 105 % 106 %

Total 100 % 100 % 105 % 106 % 109 % 110 % 108 % 107 %

The amounts above exclude these divested product lines and businesses for all periods presented.

The percentages above exclude these divested product lines and businesses for all periods presented.

RESULTS OF OPERATIONS

We are organized into the following two reportable segments:

Software and Scores.

We are organized into two reportable segments:

Scores and Software.

Although we sell solutions and services into a large number of end user product and industry markets, our reportable business segments reflect the primary method in which management organizes and evaluates internal financial information to make operating decisions and assess performance.

During the fourth quarter of fiscal 2021, we reevaluated our operating segments to better align with how our chief operating decision maker (“CODM”) evaluates performance and allocates resources, which resulted in a change from three operating segments, Applications, Decision Management Software and Scores, to two operating segments, Software and Scores, by merging Applications and Decision Management Software segments into the new Software segment.

As a result, we modified the presentation of our segment financial information with retrospective application to all prior periods presented.

In addition, effective beginning in the fourth quarter of fiscal 2021, we changed the classification of revenue from transactional and maintenance, professional services, and license to on-premises and SaaS software, professional services and scores on our consolidated statements of income and comprehensive income, as well as our disclosures on disaggregation of revenue, to better align with our business strategy.

Previously reported amounts have been adjusted to conform to the current presentation.

Segment revenues, operating income, and related financial information, including disaggregation of revenue, for the years ended September 30, 2022, 2021 and 2020 are set forth in Note 11 and Note 17 to the accompanying consolidated financial statements.

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Scores segment revenues increased $52.5 million in fiscal 2022 from 2021 due to an increase of $28.9 million in our business-to-business scores revenue and $23.6 million in our business-to-consumer revenue.

The increase in business-to-business scores revenue was primarily attributable to a higher unit price across several business-to-business offerings, as well as higher volumes.

The increase in business-to-consumer revenue was attributable to an increase in both royalties derived from scores sold indirectly to consumers through consumer reporting agencies and direct sales generated from the myFICO.com website.

The increase in business-to-business scores revenue was primarily attributable to a higher unit price across several business-to-business offerings and an increase in unsecured credit originations volume, partially offset by a decrease in mortgage originations volume.

The increase in business-to-consumer revenue was attributable to an increase in both royalties derived from scores and subscription services sold indirectly to consumers through consumer reporting agencies and direct sales generated from the myFICO.com website.

Scores segment revenues increased $125.6 million in fiscal 2021 from 2020 due to an increase of $64.6 million in our business-to-business scores revenue and $61.0 million in our business-to-consumer revenue.

The increase in business-to-business scores was primarily attributable to an increase in mortgage volumes, a higher unit price across several business-to-business offerings, a large royalty true-up as well as a large annual license deal recognized during fiscal 2020.

The increase was partially offset by a decrease in unsecured originations volume.

The increase in business-to-business scores revenue was primarily attributable to a higher unit price across several business-to-business offerings, as well as higher volumes.

Revenues collectively generated by agreements with the three major consumer reporting agencies, TransUnion, Equifax and Experian, accounted for 38%, 33% and 29% of our total revenues in fiscal 2021, 2020 and 2019, respectively, with all three consumer reporting agencies contributing more than 10% of our total revenues in fiscal 2021, and Experian contributing more than 10% of our total revenues in fiscal 2020 and 2019.

Revenues from these customers included amounts recorded in our Software segment.

Year Ended September 30, Period-to-Period Change Period-to-Period

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(In thousands) (In thousands)

Software recognized at a point time (1)

Software recognized at a point in time (1)

$ 75,647 $ 59,024 $ 127,666 $ 16,623 $ (68,642) 28 % (54) %

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489,104 458,864 456,910 30,240 1,954 7 % — %

Total $ 517,888 $ 584,576 $ 556,968 $ (66,688) 27,608 (11) % 5 %

Total on-premises and SaaS software

$ 564,751 $ 517,888 $ 584,576 $ 46,863 (66,688) 9 % (11) %

(1) Includes license portion of our on-premises subscription software and perpetual license, both of which are recognized when the software is made available to the customer, or at the start of the subscription.

(2) Includes maintenance portion and usage-based fees of our on-premises subscription software, maintenance revenue on perpetual licenses, as well as SaaS revenue.

Software segment revenues increased $8.2 million in fiscal 2022 from 2021 due to a $46.9 million increase in on-premises and SaaS software revenue, partially offset by a $38.6 million decrease in services revenue.

The increase in our on-premises and SaaS software revenue was primarily attributable to an increase in point-in-time recognition due to a large license deal, as well as an increase in over-time recognition due to SaaS growth, partially offset by the C&R business divestiture in June 2021.

The decrease in services revenue was primarily attributable to the C&R business divestiture, as well as our strategic shift to emphasize software over services.

The total revenue impact from the divestiture was $45.3 million — a $22.3 million decrease in on-premises and SaaS software revenue and a $23.0 million decrease in professional services revenue.

Software segment revenues decreased $103.6 million in fiscal 2021 from 2020 due to a $66.7 million decrease in on-premises and SaaS software revenue and a $36.9 million decrease in services revenue.

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The decrease in services revenue was primarily due to our recent strategic shift to emphasize software over services, as well as the divestiture of our C&R business.

In total, $21.7 million of the year-over-year decrease in our Software segment revenue was attributable to the divestiture of our C&R business.

Software segment revenues increased $27.1 million in fiscal 2020 from 2019 primarily attributable to a $27.6 million increase in on-premises and SaaS software revenue, comprised of a $16.4 million increase in license portion of our on-premises subscription software and perpetual license revenue recognized at a point in time, and a $11.3 million increase in revenue recognized over time, primarily attributable to an increase in SaaS subscription revenue.

Operating Expenses and Other Income, Net

The total revenue impact from the divestiture was $21.7 million.

Operating Expenses and Other Income (Expense), Net

The following tables set forth certain summary information related to our consolidated statements of income and comprehensive income for fiscal 2022, 2021 and 2020:

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Interest expense, net (68,967) (40,092) (42,177) (28,875) 2,085 72 % (5) %

Other income, net 7,745 3,208 2,276 4,537 932 141 % 41 %

Other income (expense), net (2,138) 7,745 3,208 (9,883) 4,537 (128) % 141 %

Income before income taxes 471,309 473,142 257,000 (1,833) 216,142 — % 84 %

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Interest expense, net (5) % (3) % (3) %

Other income, net 1 % — % — %

Other income (expense), net — % 1 % — %

Income before income taxes 34 % 36 % 20 %

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Cost of revenues consists primarily of employee salaries, incentives, and benefits for personnel directly involved in delivering software products, operating SaaS infrastructure, and providing support, implementation and consulting services;

allocated overhead, facilities and data center costs;

overhead, facilities and data center costs;

software royalty fees;

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and outside services.

The fiscal 2021 from 2020 decrease of $28.7 million in cost of revenues was primarily attributable to an $18.8 million decrease in personnel and labor costs, a $9.2 million decrease in allocated facilities and infrastructure costs and a $3.7 million decrease in travel costs, partially offset by an increase in direct materials costs.

The decreases in personnel and labor costs, and in allocated facilities and infrastructure costs were both largely driven by our strategic cost initiative implemented in September 2020, in which we reduced our workforce, consolidated office space and abandoned certain property and equipment;

The fiscal 2022 from 2021 decrease of $30.3 million in cost of revenues was primarily attributable to a $24.0 million decrease in personnel and labor costs, and a $6.8 million decrease in facilities and infrastructure costs, partially offset by a $0.9 million increase in direct materials costs.

The decreases in personnel and labor costs, and facilities and infrastructure costs were both largely driven by a decrease in our headcount as a result of the divestiture of our C&R business in June 2021, the fourth quarter of fiscal 2021 reduction in workforce, as well as reduced resource requirements associated with our decreased services revenue.

The increase in direct materials was primarily attributable to an increase in telecommunication costs to support FICO ® Customer Communication Service revenue.

Cost of revenues as a percentage of revenues decreased to 22% during fiscal 2022 from 25% during fiscal 2021, primarily due to an increase in license revenue recognized at a point in time, increased sales of our higher-margin Scores products and decreased sales of lower-margin professional services.

The fiscal 2021 from 2020 decrease of $28.7 million in cost of revenues was primarily attributable to an $18.8 million decrease in personnel and labor costs, a $9.2 million decrease in facilities and infrastructure costs and a $3.7 million decrease in travel costs, partially offset by an increase in direct materials costs.

The decreases in personnel and labor costs, and in facilities and infrastructure costs were both largely driven by our strategic cost initiative implemented in September 2020, in which we reduced our workforce, consolidated office space and abandoned certain property and equipment;

as well as the divestiture of our C&R business in June 2021.

The decrease in travel costs was primarily attributable to the COVID-19 pandemic.

The increase in direct materials costs was primarily attributable to increased third-party data costs related to increased Scores revenue.

The increase in direct materials costs was primarily attributable to increased third-party data costs related to increased business-to-consumer Scores revenue.

Cost of revenues as a percentage of revenues decreased to 25% during fiscal 2021 from 28% during fiscal 2020, primarily due to increased sales of our higher-margin Scores products.

The fiscal 2020 over 2019 increase of $24.3 million in cost of revenues was primarily attributable to an $11.1 million increase in allocated facilities and infrastructure costs, a $10.3 million increase in personnel and labor costs and a $7.6 million increase in direct materials cost, partially offset by a $4.9 million decrease in travel costs.

The increase in facilities and infrastructure costs was primarily attributable to increased resource requirements due to expansion in our cloud infrastructure operations.

The increase in personnel and labor costs was primarily attributable to an increase in our average headcount.

The increase in direct materials cost was primarily attributable to an increase in license and Scores revenues that incur third-party royalties and data costs, as well as an increase in telecommunication cost.

The decrease in travel costs was primarily attributable to the COVID-19 pandemic.

Cost of revenues as a percentage of revenues was 28% during fiscal 2020, materially consistent with that incurred during fiscal 2019.

Research and Development

Research and development expenses include personnel and related overhead costs incurred in the development of new products and services, including research of mathematical and statistical models and development of new versions of Software products.

The fiscal 2022 over 2021 decrease of $24.5 million in research and development expenses was primarily attributable to a $20.1 million decrease in personnel and labor costs as a result of decreased headcount, and a $3.0 million decrease in third-party cloud computing costs.

Research and development expenses as a percentage of revenues decreased to 11% during fiscal 2022 from 13% during fiscal 2021.

The fiscal 2021 over 2020 increase of $4.7 million in research and development expenses was primarily attributable to an increase in personnel and labor costs, driven by increased average headcount and our continued investments in new product development.

Research and development expenses as a percentage of revenues was 13% during fiscal 2021, consistent with that during fiscal 2020.

The fiscal 2020 over 2019 increase of $17.0 million in research and development expenses was primarily attributable to an increase in personnel and labor costs and an increase in allocated facilities and infrastructure costs, both driven by increased average headcount and our continued investments in new product development.

Research and development expenses as a percentage of revenues was 13% during fiscal 2020, consistent with that incurred during fiscal 2019.

Selling, General and Administrative

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and business development expenses.

The fiscal 2021 from 2020 decrease in selling, general and administrative expenses of $24.6 million was primarily attributable to a $7.4 million decrease in travel costs, a $6.8 million decrease in marketing costs, a $5.0 million decrease in outside services, and a $4.6 million decrease in allocated facilities and infrastructure costs.

The fiscal 2022 from 2021 decrease in selling, general and administrative expenses of $12.4 million was primarily attributable to a $27.6 million decrease in personnel and labor costs, partially offset by a $6.4 million increase in marketing costs, a $5.1 million increase in travel costs, a $3.4 million increase in insurance costs, and a $0.8 million increase in third-party cloud computing costs.

The decrease in personnel and labor costs was primarily a result of decreased headcount, decreased fringe benefit costs related to our supplemental retirement and savings plan, and lower non-capitalizable commission cost, partially offset by higher share-based compensation.

The increase in marketing and travel costs was primarily driven by a company-wide marketing event held during fiscal 2022.

In addition, travel costs increased as certain COVID-19 related restrictions have been relaxed.

Selling, general and administrative expenses as a percentage of revenues decreased to 28% during fiscal 2022 from 30% during fiscal 2021.

The decrease in travel costs was a result of a decrease in travel activity due to COVID-19.

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The decrease in outside services was attributable to a decrease in legal and consulting fees associated with several company initiatives during fiscal 2020.

The decrease in allocated facilities and infrastructure costs was largely driven by our strategic cost initiative implemented in September 2020, in which we consolidated office space and abandoned certain property and equipment.

Selling, general and administrative expenses as a percentage of revenues decreased to 30% during fiscal 2021 from 33% during fiscal 2020 primarily due to increased sales of our high-margin Scores products.

The fiscal 2020 over 2019 increase of $6.8 million was primarily attributable to an increase in personnel and labor costs as a result of increased average headcount, higher share-based compensation and higher non-capitalizable commission cost.

The increase was partially offset by a decrease in marketing and travel costs as a result of a decrease in travel activity due to COVID-19.

Selling, general and administrative expenses as a percentage of revenues decreased to 33% during fiscal 2020 from 35% during fiscal 2019 primarily due to increased sales of our high-margin Scores and software products.

The decrease in facilities and infrastructure costs was largely driven by our strategic cost initiative implemented in September 2020, in which we consolidated office space and abandoned certain property and equipment.

Selling, general and administrative expenses as a percentage of revenues decreased to 30% during fiscal 2021 from 33% during fiscal 2020.

Amortization of Intangible Assets

Amortization of intangible assets consists of expense related to intangible assets recorded in connection with our acquisitions.

Our finite-lived intangible assets consist primarily of completed technology and customer contracts and relationships, which are being amortized using the straight-line method over periods ranging from four to fifteen years.

Our finite-lived intangible assets, consisting primarily of completed technology and customer contracts and relationships, are being amortized using the straight-line method over periods ranging from four to ten years.

Amortization expense was $2.1 million, $3.3 million and $5.0 million for fiscal 2022, 2021 and 2020, respectively.

Restructuring and Impairment Charges

There were no restructuring and impairment charges incurred during fiscal 2022.

During the fourth quarter of fiscal 2021, we incurred charges of $8.0 million in employee separation costs due to the elimination of 160 positions throughout the Company.

Cash payments for all the employee separation costs will be paid by the end of our fiscal 2022.

Cash payments for all the employee separation costs were fully paid before the end of our fiscal 2022.

There were no impairment charges incurred during fiscal 2021.

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Cash payments for all the employee separation costs were fully paid before the end of our fiscal 2021.

There were no restructuring and impairment charges incurred during fiscal 2019.

Gains on Product Line Asset Sales and Business Divestiture

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Interest Expense, Net

Interest expense includes primarily interest on the senior notes issued in December 2019, May 2018, and July 2010 (which July 2010 senior notes were paid in full at maturity in July 2020), as well as interest and credit facility fees on the revolving line of credit.

Interest expense includes interest on the senior notes issued in December 2021, December 2019, May 2018, and July 2010 (July 2010 senior notes were paid in full at maturity in July 2020), as well as interest and credit facility fees on the revolving line of credit and term loan.

On our consolidated statements of income and comprehensive income, interest expense is netted with interest income, which is derived primarily from the investment of funds in excess of our immediate operating requirements.

The fiscal 2022 from 2021 increase in net interest expense of $28.9 million was primarily attributable to a higher average outstanding debt balance during fiscal 2022, as well as a higher average interest rate on our revolving line of credit and term loan during fiscal 2022.

The fiscal 2021 from 2020 decrease in net interest expense of $2.1 million was primarily attributable to a lower average outstanding debt balance during fiscal 2021.

The fiscal 2020 over 2019 increase in net interest expense of $2.4 million was primarily attributable to a higher average outstanding debt balance during fiscal 2020.

Other Income, Net

Other income, net consists primarily of realized investment gains/losses and unrealized gains/losses on certain investments classified as trading securities, exchange rate gains/losses resulting from re-measurement of foreign-currency-denominated receivable and cash balances held by our various reporting entities into their respective functional currencies at period-end market rates, net of the impact of offsetting foreign currency forward contracts, and other non-operating items.

The fiscal 2021 over 2020 increase in other income, net of $4.5 million was primarily attributable to an increase in net unrealized gains on our supplemental retirement and savings plan, as well as a decrease in foreign currency exchange losses.

The fiscal 2020 over 2019 increase in other income, net of $0.9 million was primarily attributable to an increase in net unrealized gains on our supplemental retirement and savings plan, partially offset by an increase in foreign currency exchange losses.

Other Income (Expense), Net

Other income (expense), net consists primarily of unrealized investment gains/losses and realized gains/losses on certain investments classified as trading securities, exchange rate gains/losses resulting from remeasurement of foreign-currency-denominated receivable and cash balances held by our various reporting entities into their respective functional currencies at period-end market rates, net of the impact of offsetting foreign currency forward contracts, and other non-operating items.

The fiscal 2022 over 2021 change in other income (expense), net of $9.9 million, from $7.7 million in other income, net in fiscal 2021 to $2.1 million in other expense, net in fiscal 2022, was primarily attributable to net unrealized losses on investments classified as trading securities in our supplemental retirement and savings plan in the current year compared to gains in the prior year, partially offset by an increase in foreign currency exchange gains.

The fiscal 2021 over 2020 increase in other income, net of $4.5 million was primarily attributable to an increase in net unrealized gains on investments classified as trading securities in our supplemental retirement and savings plan, as well as a decrease in foreign currency exchange losses.

Provision for Income Taxes

Our effective tax rates were 20.7%, 17.1% and 8.0% in fiscal 2022, 2021 and 2020, respectively.

The increase in our income tax provision in fiscal 2022 compared to fiscal 2021 was due to a decrease in excess tax benefits related to share-based compensation.

The increase in our income tax provision in fiscal 2021 compared to fiscal 2020 was due to an increase in pretax book income, of which a large amount was due to the gain on divestiture of C&R business, as well as a decrease in excess tax benefits related to share-based compensation.

The decrease in our income tax provision in fiscal 2020 compared to fiscal 2019 was due to the excess tax benefits related to share-based compensation.

As of September 30, 2021, we had approximately $141.5 million of unremitted earnings of non-U.S.

subsidiaries.

The Company generates substantial cash flow in the U.S.

and does not have a current need for the cash to be returned to the U.S.

from the foreign entities.

In the event these earnings are later remitted to the U.S., any estimated withholding tax and state income tax due upon remittance of those earnings is expected to be immaterial to the income tax provision.

Operating Income

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Segment operating income $ 185,452 $ 105,147 $ 130,066 28 % 16 % 17 %

The fiscal 2022 over 2021 increase in operating income of $36.9 million was primarily attributable to an $81.7 million decrease in segment operating expenses, a $60.7 million increase in segment revenues, and an $8.0 million decrease in restructuring and impairment charges.

This was partially offset by $100.1 million in gains on product line asset sales and business divestiture during fiscal 2021, an $11.6 million increase in corporate expenses, and a $2.9 million increase in share-based compensation expense.

At the segment level, the $130.8 million increase in segment operating income was the result of an $80.3 million increase in our Software segment operating income, and a $62.1 million increase in our Scores segment operating income, partially offset by an $11.6 million increase in corporate expenses.

The $62.1 million increase in our Scores segment operating income was attributable to a $52.5 million increase in segment revenue and a $9.6 million decrease in segment operating expenses.

Segment operating income as a percentage of segment revenue for Scores increased to 88% from 86%.

The $80.3 million increase in our Software segment operating income was attributable to a $72.1 million decrease in segment operating expenses and an $8.2 million increase in segment revenue.

Segment operating income as a percentage of segment revenue for Software increased to 28% from 16%, primarily attributable to the divestiture of our lower-margin C&R business, an increase in higher-margin license revenue recognized at a point in time, and a decrease in sales of our lower-margin professional services.

The fiscal 2021 over 2020 increase in operating income of $209.5 million was primarily attributable to a $100.1 million gain on product line asset sales and business divestiture during fiscal 2021, a $59.5 million decrease in segment operating expenses, a $37.1 million decrease in restructuring and impairment charges, a $22.0 million increase in segment revenues and a $7.8 million decrease in corporate expenses, partially offset by an $18.8 million increase in share-based compensation expense.

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Segment operating income as a percentage of segment revenue for Software was 16%, materially consistent with fiscal 2020.

The fiscal 2020 over 2019 increase in operating income of $42.4 million was attributable to a $134.5 million increase in segment revenues and a $1.1 million decrease in amortization expense, partially offset by a $45.0 million increase in restructuring and impairment charges, a $37.5 million increase in segment operating expenses, and a $10.7 million increase in share-based compensation expense.

At the segment level, the $97.0 million increase in segment operating income was the result of a $93.0 million increase in our Scores segment operating income and a $4.0 million increase in our Software segment operating income.

The $93.0 million increase in our Scores segment operating income was attributable to a $107.4 million increase in segment revenue, partially offset by a $14.4 million increase in segment operating expenses.

Segment operating income as a percentage of segment revenue for Scores was 86%, consistent with fiscal 2019.

The $4.0 million increase in our Software segment operating income was attributable to a $27.1 million increase in segment revenue, partially offset by a $23.1 million increase in segment operating expenses.

Segment operating income as a percentage of segment revenue for Software was 17%, consistent with fiscal 2019.

CAPITAL RESOURCES AND LIQUIDITY

As of September 30, 2022, we had $133.2 million in cash and cash equivalents, which included $105.8 million held by our foreign subsidiaries.

Our cash position could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part I, Item 1A titled “Risk Factors” of this Annual Report on Form 10-K.

However, based on our current business plan and revenue prospects, we believe our cash and cash equivalents balances, as well as available borrowings from our $600 million revolving line of credit and anticipated cash flows from operating activities, will be sufficient to fund our working and other capital requirements for at least the next 12 months and thereafter for the foreseeable future.

Under our current financing arrangements, we have no significant debt obligations maturing over the next twelve months.

Our undistributed earnings outside the U.S.

are deemed to be permanently reinvested in foreign jurisdictions.

We currently do not foresee a need to repatriate cash and cash equivalents held by our foreign subsidiaries.

If these funds are needed for our operations in the U.S., we may be required to accrue for state income or foreign withholding taxes on the distributed foreign earnings, which we expect to be immaterial.

We believe our cash and cash equivalents balances, including those held by our foreign subsidiaries, as well as available borrowings from our $600 million revolving line of credit and anticipated cash flows from operating activities, will be sufficient to fund our working and other capital requirements for at least the next 12 months and thereafter for the foreseeable future, including the $15.0 million principal payments on our term loan due over the next twelve months.

Under our current financing arrangements, we have no other significant debt obligations maturing over the next twelve months.

For jurisdictions outside the U.S.

where cash may be repatriated in the future, the Company expects the net impact of any repatriations to be immaterial to the Company’s overall tax liability.

In the normal course of business, we evaluate the merits of acquiring technology or businesses, or establishing strategic relationships with or investing in these businesses.

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Effect of exchange rate changes on cash (18,766) (136) 59

Increase in cash and cash equivalents $ 37,960 $ 50,968 $ 16,403

Increase (decrease) in cash and cash equivalents $ (62,152) $ 37,960 $ 50,968

Cash Flows from Operating Activities

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Net cash provided by operating activities totaled $509.5 million in fiscal 2022 compared to $423.8 million in fiscal 2021.

The $58.9 million increase was primarily attributable to a $155.7 million increase in net income and a $28.6 million increase that resulted from timing of receipts and payments in our ordinary course of business, partially offset by a $125.4 million decrease in non-cash items, including a $100.1 million gain on product line asset sales and a business divestiture in fiscal 2021.

The $85.7 million increase was attributable to a $127.3 million increase in non-cash items, including a $100.1 million gain on product line asset sales and business divestiture in fiscal 2021, partially offset by a $23.1 million decrease that resulted from timing of receipts and payments in our ordinary course of business, and an $18.5 million decrease in net income.

Net cash provided by operating activities totaled $423.8 million in fiscal 2021 compared to $364.9 million in fiscal 2020.

The $104.5 million increase was attributable to a $44.3 million increase in net income, a $46.1 million increase in non-cash items, including a $28.0 million increase in impairment loss on operating lease assets as well as a $20.0 million increase in operating lease costs, and a $14.2 million increase that resulted from timing of receipts and payments in our ordinary course of business.

Cash Flows from Investing Activities

Net cash used in investing activities totaled $5.7 million in fiscal 2022 compared to net cash provided of $137.9 million in fiscal 2021.

The $143.6 million change was primarily attributable to a $145.2 million decrease in cash proceeds from the product line asset sales and business divestiture, partially offset by a $1.5 million decrease in purchases of property and equipment.

Net cash provided by investing activities totaled $137.9 million in fiscal 2021 compared to net cash used of $24.6 million in fiscal 2020.

The $162.5 million change was primarily attributable to $147.4 million in cash proceeds from the product line asset sales and a business divestiture during fiscal 2021 and a $14.4 million decrease in purchases of property and equipment.

Net cash used in investing activities totaled $24.6 million in fiscal 2020 compared to $42.8 million in fiscal 2019.

The $18.2 million decrease was primarily attributable to a $15.9 million decrease in net cash used for acquisitions and a $2.0 million decrease in net cash used for purchases of property and equipment.

Cash Flows from Financing Activities

Net cash used in financing activities totaled $547.2 million in fiscal 2022 compared to $523.6 million in fiscal 2021.

The $234.2 million increase was primarily attributable to a $639.0 million increase in repurchases of common stock and a $350.0 million decrease in proceeds from issuance of senior notes, partially offset by a $419.0 million increase in proceeds from our revolving line of credit, a $254.0 million decrease in payments on our revolving line of credit, and an $85.0 million decrease in payments on senior notes.

The $23.6 million increase was primarily attributable to a $372.3 million increase in payments, net of proceeds, on our revolving line of credit and term loan, a $230.0 million increase in repurchases of common stock, and a $7.3 million increase in payments on debt issuance costs, partially offset by a $550.0 million increase in proceeds from the issuance of senior notes and a $40.7 million decrease in taxes paid related to net share settlement of equity awards.

Net cash used in financing activities totaled $523.6 million in fiscal 2021 compared to $289.4 million in fiscal 2020.

The $89.4 million increase was primarily due to a $338.0 million increase in payments, net of proceeds, on our revolving line of credit and a $49.9 million increase in taxes paid related to net share settlement of equity awards, partially offset by a $293.0 million increase in proceeds, net of payments, from our senior notes.

Repurchases of Common Stock

In July 2020, our Board of Directors approved a stock repurchase program following the completion of the previously authorized program.

In November 2021, our Board of Directors approved a stock repurchase program following the completion of the previously authorized program.

This program was open-ended and authorized repurchases of shares of our common stock up to an aggregate cost of $500.0 million in the open market or in negotiated transactions.

In March 2021, our Board of Directors approved another stock repurchase program following the completion of the July 2020 program.

In January 2022, our Board of Directors approved another stock repurchase program following the completion of the November 2021 program.

This program was open-ended and authorized repurchases of shares of our common stock up to an aggregate cost of $500.0 million in the open market or in negotiated transactions.

As part of the broader share repurchase program, we entered into an accelerated share repurchase agreement (“ASR Agreement”) with a financial institution in June 2021 to repurchase $200.0 million of our common stock.

Pursuant to the ASR Agreement, we paid $200.0 million to the financial institution and received an initial delivery of 319,400 shares of common stock, which approximated 80% of the total number of expected shares to be repurchased under the ASR Agreement.

In August 2021, we settled the ASR Agreement and received 70,127 additional shares.

In total, 389,527 shares were repurchased under the ASR Agreement.

In August 2021, our Board of Directors approved a new stock repurchase program following the termination of the March 2021 program.

This new program is open-ended and authorizes repurchases of shares of our common stock up to an aggregate cost of $500.0 million in the open market or in negotiated transactions.

In August 2021, we entered into a stock repurchase agreement with an institutional shareholder, pursuant to which we repurchased 515,293 shares of our common stock for $225.0 million.

As of September 30, 2021, we had $173.2 million remaining under our current stock repurchase program.

During fiscal 2021, 2020 and 2019, we expended $882.2 million, $235.2 million and $228.9 million, respectively, under these and previously authorized stock repurchase programs.

Revolving Line of Credit

On August 19, 2021, we amended our credit agreement with a syndicate of banks, increasing our borrowing capacity under the unsecured revolving line of credit to $600 million, and extended its maturity to August 19, 2026.

As of September 30, 2022, we had $62.6 million remaining under our then-current stock repurchase program.

During fiscal 2022, 2021 and 2020, we expended $1.1 billion, $882.2 million and $235.2 million, respectively, under these and previously authorized stock repurchase programs.

In October 2022, our Board of Directors approved a new stock repurchase program replacing the January 2022 stock repurchase program.

The new program is open-ended and authorizes repurchases of shares of our common stock up to an aggregate cost of $500.0 million in the open market or in negotiated transactions.

Revolving Line of Credit and Term Loan

We have a $600 million unsecured revolving line of credit with a syndicate of banks that expires on August 19, 2026.

Borrowings under the credit facility can be used for working capital and general corporate purposes and may also be used for the refinancing of existing debt, acquisitions, and the repurchase of our common stock.

Interest on amounts borrowed under the credit facility is based on (i) an adjusted base rate, which is the greatest of (a) the prime rate and (b) the Federal Funds rate plus 0.500% and (c) the one-month LIBOR rate plus 1.000%, plus, in each case, an applicable margin, or (ii) an adjusted LIBOR rate plus an applicable margin.

Interest on amounts borrowed under the credit facility is based on (i) an adjusted base rate, which is the greatest of (a) the prime rate, (b) the Federal Funds rate plus 0.500% and (c) the one-month LIBOR rate plus 1.000%, plus, in each case, an applicable margin, or (ii) an adjusted LIBOR rate plus an applicable margin.

The applicable margin for base rate borrowings ranges from 0% to 0.750% and for LIBOR borrowings ranges from 1.000% to 1.750%, and is determined based on our consolidated leverage ratio.

In addition, we must pay credit facility fees.

The credit facility contains certain restrictive covenants including maintaining a maximum consolidated leverage ratio of 3.50, subject to a step up to 4.00 following certain permitted acquisitions;

The credit facility contains certain restrictive covenants, including a maximum consolidated leverage ratio of 3.50, subject to a step up to 4.00 following certain permitted acquisitions;

and a minimum interest coverage ratio of 3.00.

The credit agreement also contains other covenants typical of unsecured facilities.

As of September 30, 2021, we had $518.0 million in borrowings outstanding at a weighted-average interest rate of 1.212% and we were in compliance with all financial covenants under this credit facility.

On October 20, 2021, we entered into an amendment to our credit agreement that provides for an unsecured term loan that will mature on August 19, 2026 in the aggregate principal amount of $300 million, with an option for us to request additional incremental term loans from time to time, in each case subject to the terms and conditions of the credit agreement.

The term loan is in addition to the $600 million revolving loan facility.

The term loan is subject to the same pricing and covenants as the revolving line of credit.

We are obligated to repay the term loan in consecutive quarterly installments equal to $3.75 million commencing March 31, 2022, subject to certain adjustments under the credit agreement.

On October 20, 2021, we amended our credit agreement to provide for the issuance of a $300 million term loan.

The term loan is subject to the same pricing and covenants as the revolving line of credit and matures at the expiration of the facility on August 19, 2026.

The term loan requires principal payments in consecutive quarterly installments of $3.75 million on the last business day of each quarter.

As of September 30, 2022, we had $280.0 million in borrowings outstanding under the revolving credit facility at a weighted-average interest rate of 4.479% and $288.8 million in outstanding balance of the term loan at an interest rate of 4.283%, of which $538.8 million was classified as a long-term liability and recorded in long-term debt within the accompanying consolidated balance sheets.

We were in compliance with all financial covenants under this credit facility as of September 30, 2022.

On May 8, 2018, we issued $400 million of senior notes in a private offering to qualified institutional investors (the “2018 Senior Notes”).

The 2018 Senior Notes require interest payments semi-annually at a rate of 5.25% per annum and will mature on May 15, 2026.

On December 6, 2019, we issued $350 million of senior notes in a private offering to qualified institutional investors (the “2019 Senior Notes,” and with the 2018 Senior Notes, the “Senior Notes”).

On December 6, 2019, we issued $350 million of senior notes in a private offering to qualified institutional investors (the “2019 Senior Notes”).

The 2019 Senior Notes require interest payments semi-annually at a rate of 4.00% per annum and will mature on June 15, 2028.

The indentures for the 2018 Senior Notes and the 2019 Senior Notes contain certain covenants typical of unsecured obligations.

As of September 30, 2021, the carrying value of the Senior Notes was $750.0 million and we were in compliance with all financial covenants under these obligations, and we do not believe we are at material risk of not meeting these covenants due to COVID-19.

On December 17, 2021, we issued $550 million of additional senior notes of the same class as the 2019 Senior Notes in a private offering to qualified institutional investors (the “2021 Senior Notes,” and collectively with the 2018 Senior Notes and the 2019 Senior Notes, the “Senior Notes”).

The 2021 Senior Notes require interest payments semi-annually at a rate of 4.00% per annum and will mature on June 15, 2028, the same date as the 2019 Senior Notes.

The indentures for the Senior Notes contain certain covenants typical of unsecured obligations.

As of September 30, 2022, the carrying value of the Senior Notes was $1.3 billion and we were in compliance with all financial covenants under these obligations.

Contractual Obligations

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Senior Notes (1)

Revolving line of credit — — — — 518,000 — 518,000

Interest due on debt obligations (2) 35,000 35,000 35,000 35,000 35,000 28,000 203,000

$ — $ — $ — $ 400,000 $ — $ 900,000 $ 1,300,000

Revolving line of credit and term loan (1)

15,000 15,000 15,000 523,750 — — 568,750

Interest due on Senior Notes 57,000 57,000 57,000 57,000 36,000 36,000 300,000

Operating lease obligations 21,306 15,994 9,320 8,211 5,583 2,604 63,018

Unrecognized tax benefits (2)

— — — — — — 12,980

Total commitments $ 93,306 $ 87,994 $ 81,320 $ 988,961 $ 41,583 $ 938,604 $ 2,244,748

(1) Represents the unpaid principal amount of the Senior Notes.

(2) Represents interest payments on the Senior Notes.

(1) Represents the unpaid principal payments due under the Senior Notes, revolving line of credit, and term loan.

(2) Represents unrecognized tax benefits related to uncertain tax positions.

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We prepare our consolidated financial statements in conformity with U.S.

generally accepted accounting principles.

These accounting principles require management to make certain judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

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We base our estimates on historical experience and various other assumptions that we believe to be reasonable based on the specific circumstances, the results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates.

We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements:

Actual results may differ from these estimates and such differences could be material to our financial condition and results of operations.

Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations.

While our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included elsewhere in this report, we believe the following discussion addresses our most critical accounting estimates, which involve significant subjectivity and judgment, and changes to such estimates or assumptions could have a material impact on our financial condition or operating results.

Therefore, we consider an understanding of the variability and judgment required in making these estimates and assumptions to be critical in fully understanding and evaluating our reported financial results.

Revenue Recognition

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Our SaaS products provide customers with access to and standard support for our software on a subscription basis, delivered through our own infrastructure or third-party cloud services.

The SaaS transaction contracts typically include a guaranteed minimum fee per period that allows up to a certain level of usage and a consumption-based variable amount in excess of the minimum threshold;

The SaaS transaction contracts typically include a guaranteed minimum fee per period that allows up to a certain level of usage and a consumption-based variable fee in excess of the minimum threshold;

or a consumption-based variable fee not subject to a minimum threshold.

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Our professional services include software implementation, consulting, model development and training.

They are sold either standalone, or together with other products or services and generally represent distinct performance obligations.

Professional services are sold either standalone, or together with other products or services and generally represent distinct performance obligations.

The transaction price can be a fixed amount or a variable amount based upon the time and materials expended.

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We assess goodwill for impairment for each of our reporting units on an annual basis during our fourth fiscal quarter using a July 1 measurement date unless circumstances require a more frequent measurement.

During the fourth quarter of fiscal 2021, we reevaluated our operating segments to better align with how our CODM evaluates performance and allocates resources, which resulted in a change from three operating segments, Applications, Decision Management Software and Scores, to two operating segments, Software and Scores.

As part of this reevaluation, we determined our operating segments continue to represent our reporting units.

We have determined that our reporting units are the same as our reportable segments.

When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more likely than not that a reporting unit's carrying amount exceeds its fair value, referred to as a “step zero” approach.

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Alternatively, we may bypass the qualitative assessment described above for any reporting unit in any period and proceed directly to performing step one of the goodwill impairment test.

We performed a step one quantitative impairment test on the Software and Scores reporting units before and immediately following the change in reporting units.

There was a substantial excess of fair value over carrying value for the reporting units and we determined goodwill was not impaired for any of our reporting units before or after the change for fiscal 2021.

For fiscal 2019 and 2020, we performed a step zero qualitative analysis for our annual assessment of goodwill impairment.

For fiscal 2020, we performed a step zero qualitative analysis for our annual assessment of goodwill impairment.

After evaluating and weighing all relevant events and circumstances, we concluded that it is not more likely than not that the fair value of any of our reporting units was less their carrying amounts.

Consequently, we did not perform a step one quantitative analysis and determined goodwill was not impaired for any of our reporting units for fiscal 2019 and 2020.

Consequently, we did not perform a step one quantitative analysis and determined goodwill was not impaired for any of our reporting units for fiscal 2020.

For fiscal 2021, we consolidated our operating segment structure from three to two by merging our Applications and Decision Management Software segments into the new Software segment.

We proceeded directly to a step one quantitative impairment test on the Software and Scores reporting units before and immediately following the change in reporting units.

For fiscal 2022, we performed a step zero qualitative analysis for our annual assessment of goodwill impairment.

After evaluating and weighing all relevant events and circumstances, we concluded that it is not more likely than not that the fair value of either of our reporting units was less their carrying amounts.

Consequently, we did not perform a step one quantitative analysis and determined goodwill was not impaired for either of our reporting units for fiscal 2022.

Our intangible assets that have finite useful lives and other long-lived assets are assessed for potential impairment when there is evidence that events and circumstances related to our financial performance and economic environment indicate the carrying amount of the assets may not be recoverable.

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We estimate our current tax liability using currently enacted tax rates and laws and assess temporary differences that result from differing treatments of certain items for tax and accounting purposes.

These differences result in deferred tax assets and liabilities recorded on our balance sheet using the currently enacted tax rates and laws that will apply to taxable income for the years in which those tax assets are expected to be realized or settled.

These differences result in deferred tax assets and liabilities recorded on our consolidated balance sheets using the currently enacted tax rates and laws that will apply to taxable income for the years in which those tax assets are expected to be realized or settled.

We then assess the likelihood our deferred tax assets will be realized and to the extent we believe realization is not more likely than not, we establish a valuation allowance.

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New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2018-15, Intangibles—Goodwill and Other (Topic 350):

Internal-Use Software (“ASU 2018-15”).

ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

We adopted ASU 2018-15 in the first quarter of our fiscal 2021 and the adoption did not have a significant impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance:

ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-11 (collectively, “Topic 326”).

Topic 326 requires measurement and recognition of expected credit losses for financial assets held.

We adopted Topic 326 in the first quarter of our fiscal 2021 and the adoption did not have a significant impact on our consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

We do not expect that any recently issued accounting pronouncements will have a significant effect on our financial statements.

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2021-08, “ Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ” (“ASU 2021-08”).

ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities from acquired contracts using the revenue recognition guidance under Accounting Standards Codification Topic 606, Revenue from Contacts with Customers , in order to align the recognition of a contract liability with the definition of a performance obligation.

The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, which means that it will be effective for our fiscal year beginning October 1, 2023.

Early adoption is permitted.

We do not believe that adoption of ASU 2021-08 will have a significant impact on our consolidated financial statements.

We do not expect that any other recently issued accounting pronouncements will have a significant effect on our financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis